NIGERIA: RESPONSE TO EX-IM QUERIES ON NIGERIAN

UNCLAS SECTION 01 OF 02 LAGOS 002140

SIPDIS


SENSITIVE BUT UNCLASSIFIED


STATE PASS TO EX-IM FOR CHERYL MORIARTY, RITA MURRELL,
PAMELA ROSS, MAUREEN SCURRY AND ANITA TURI-WRIGHT


E.O. 12958: N/A
TAGS: EFIN EINV ECON PINR NI EXIM
SUBJECT: NIGERIA: RESPONSE TO EX-IM QUERIES ON NIGERIAN
BANKING SECTOR

REF: (A) STATE 287449, (B) MORIARTY-FULLER EMAIL OF
08222003/0737, (C) MURRELL-KRZYWDA EMAIL OF
08252003/0228



1. (U) Rumors of distress in the Nigerian banking
sector have raised doubts about the industry's health
and prompted questions about certain banks' stability.
Post's response follows.



2. (U) Rumors of a list of distressed banks first
surfaced in mid-August. Central Bank of Nigeria (CBN)
and Nigeria Deposit Insurance Corporation (NDIC)
contacts deny the existence of an explicit list of
troubled banks but inicate that ten or twelve may be
facing temporaryliquidity problems; these may undergo
special CBNor NDIC examinations. Extremely unhealthy
bankscould eventually be liquidated, but troubled
insittions ill more likely be asked to restructure,
re-capitalize or improve corporate governance
ractices. Flagrant violations of CBN regulations
could result in fine
or sanctions, but most of thse
can eventually be overcome.



3. (SBU) The Central Bank of Nigeria (CBN) suspended
two banks, Societe Generale Bank of Nigeria and African
International Bank, from its clearinghouse in mid-
August for consistently overdrawing their CBN accounts.
Both banks had long been suspected of having serious
capitalization or liquidity problems, and both are now
attempting to re-capitalize and re-enter the
clearinghouse. Societe Generale's troubles gained
notoriety when the Nigerian press reported that a
number of prominent figures (national lawmakers among
them) had rather large accounts at the bank. Industry
insiders not only confirm these reports but whisper of
additional irregularities. A senior official of the
Nigeria Inter-Bank Settlement System told us, in fact,
that one of Societe Generale's directors, Dr. Sola
Saraki of Kwara State, secured large loans for his
son's (ultimately successful) gubernatorial campaign
without providing repayment. He argues that the bank's
failure to recover these and other loans played a major
role in weakening its books, but with fresh injections
of funds (more than $15 million landed in the bank's
accounts a few days ago),the bank may eventually
recover.



4. (U) The Bank of the North has equally poor loan
recovery rates, but its problems have not been severe
enough to warrant suspension from the industry's
clearinghouse. The CBN replaced the bank's board of
governors in mid-August (the new board is charged with
restructuring and re-capitalizing the bank),and the 19
northern states that own the bank have since committed
to fresh injections of funds. CBN contacts indicate
that future loans to northern state governments will be
severely limited; if this is true, the bank's liquidity
profile will likely improve. Given the bank's
ownership structure and the political ramifications of
failure, the bank will likely remain operational.



5. (U) CBN and NDIC contacts indicate that Reliance
Bank and Platinum Bank are generally healthy, but the
banks' published accounts are more than a year old.
The CBN completed its examination of Reliance Bank in
late September but has yet to prepare a final report.
While the deputy director of the CBN's bank examination
department in Lagos said he knew of no specific
irregularities or negative practices, he did mention
that three of the bank's owners, the Vaswani brothers,
had been deported after allegations of widespread
economic and financial crimes; their misdeeds may or
may not indicate gaps in the bank's corporate
governance practices. The NDIC, meanwhile, has yet to
begin its examination of Platinum Bank. According to
NDIC contacts, Platinum emerged three years ago from
the liquidation of Nationwide Merchant Bank, one of
nearly thirty institutions liquidated by the CBN in the
late 1990s. A well and favorably known professor at
the Lagos Business School, Pat Utomi, is one of
Platinum Bank's directors (and chairman of Business
Day, Nigeria's leading daily business newspaper).



6. (SBU) Two other banks, NAL Merchant Bank and
Cooperative Development Bank, also appear relatively
healthy. CBN contacts indicate that the banks are
sound, but the deputy managing director of Financial
Derivatives Company Limited, a Lagos-based economic
think tank, suggested that he would be reluctant to
enter into anything other than short- to medium-term
transactions with either bank.



7. (U) In general, the CBN's supervisory oversight
appears sufficient. The institution's regular
examinations of Nigerian banks have resulted in the
closure or liquidation of 35 banks since 1994 and the
mid-2002 sanctioning of approximately twenty others for
foreign exchange violations; these have largely stopped
since then, and respect for the CBN has increased. The
institution supports Nigerian banks' links with foreign
counterparts and generally does all it can to ensure a
stable financial system. The CBN has largely been
successful: in general, the Nigerian banking sector is
healthy, and industry insiders insist that the sector
is set for continued growth.


GREGOIRE